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Chavez Back Pedals

Now this is pretty funny:


Chávez Lets West Make Oil Bids as Prices Plunge

CARACAS, Venezuela — President Hugo Chávez, buffeted by falling oil prices that threaten to damage his efforts to establish a Socialist-inspired state, is quietly courting Western oil companies once again.

Until recently, Mr. Chávez had pushed foreign oil companies here into a corner by nationalizing their oil fields, raiding their offices with tax authorities and imposing a series of royalties increases.

But faced with the plunge in prices and a decline in domestic production, senior officials have begun soliciting bids from some of the largest Western oil companies in recent weeks — including Chevron, Royal Dutch/Shell and Total of France — promising them access to some of the world’s largest petroleum reserves, according to energy executives and industry consultants here.

Let’s see. Invite oil companies in, steal their investments when oil prices go up, kick them out, invite them in again when oil prices fall. That sounds fair. Every oil company with a few billion dollars burning a hole in their pocket is probably lining up – presuming they don’t mind losing 100% of their investment based on Chavez’s whims.

In all seriousness, I have said on numerous occasions that the oil industry in Venezuela couldn’t survive with Chavez siphoning all the profits and using them to fund his social programs. The oil industry is capital intensive. You neglect those capital requirements at the peril of future production. Someone commented on a previous essay that it was arrogant to assume that Venezuela couldn’t expand oil production without outside help. As I pointed out, heavy oil production is technically challenging. Chavez’s move here is an admission that things haven’t worked out for him as planned, and that in fact they do need outside help; help that Chavez has thoroughly alienated.

As the article points it, the biggest irony is that Chavez has celebrated the demise of capitalism in Venezuela, even though it was capitalism that enabled him to carry out his social programs. So, he is going to give capitalism another chance – but we have seen what happens when prices go up. His motto is “You take the risk, I will reap the reward.”

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January 15, 2009 - Posted by | Hugo Chavez, Venezuela

22 Comments

  1. “You take the risk, I will reap the reward.”

    Seems to be the motto here in the U.S. these days as well.

    Comment by Anonymous | January 15, 2009

  2. “You take the risk, I will reap the reward.”Seems to be the motto here in the U.S. these days as well.

    Comment by Anonymous | January 15, 2009

  3. Hi Robert,

    New reader of your blog and to the renewable energy field. Thanks for the great posts!

    This is slightly OT, but could you address the whole fuel cell thing in one of your posts sometime (or point me to such an analysis)? The basic idea I have after reading some articles here and there is that the hydrogen economy is a myth because the EROI is pretty bad and hydrogen has storage problems, not to the mention the chicken and egg problems of the hydrogen highway.

    If this is true, why is there so much hype still about fuel cells? Why do I also read (for example) about how Kleiner Perkins is very excited about one of its fuel cell companies (Bloom Energy) product and such ? Do non hydrogen fuel cells (solid oxide etc) have commercial potential ?

    Appreciate your thoughts and please keep up the good work.

    Regards,
    -Sam

    Comment by Sam | January 15, 2009

  4. Hi Robert, New reader of your blog and to the renewable energy field. Thanks for the great posts! This is slightly OT, but could you address the whole fuel cell thing in one of your posts sometime (or point me to such an analysis)? The basic idea I have after reading some articles here and there is that the hydrogen economy is a myth because the EROI is pretty bad and hydrogen has storage problems, not to the mention the chicken and egg problems of the hydrogen highway. If this is true, why is there so much hype still about fuel cells? Why do I also read (for example) about how Kleiner Perkins is very excited about one of its fuel cell companies (Bloom Energy) product and such ? Do non hydrogen fuel cells (solid oxide etc) have commercial potential ?Appreciate your thoughts and please keep up the good work.Regards,-Sam

    Comment by Sam | January 15, 2009

  5. You gotta wonder who would drill in Venezuela now.
    There is the thinnest ray of hope in this development, howevr. After a while, even petro-dictators run out of money. Libya comes to mind. Then, they start to make nice with people who actually know what they are doing, and show up for work.
    We may see nations such as Iraq, Iran, Mexico and Venezuele start cutting deals. Libya already is. Russia may start again also.
    Since there is no real contract law in those nations, I do wonder why any oil outift wouldbother. A deal is not a deal in petro-thug land.
    Still, there is the chance we will see extra mbd’s on the world market in five-seven years from thug states.

    Comment by benny "MOAG" cole | January 16, 2009

  6. You gotta wonder who would drill in Venezuela now.There is the thinnest ray of hope in this development, howevr. After a while, even petro-dictators run out of money. Libya comes to mind. Then, they start to make nice with people who actually know what they are doing, and show up for work.We may see nations such as Iraq, Iran, Mexico and Venezuele start cutting deals. Libya already is. Russia may start again also. Since there is no real contract law in those nations, I do wonder why any oil outift wouldbother. A deal is not a deal in petro-thug land. Still, there is the chance we will see extra mbd’s on the world market in five-seven years from thug states.

    Comment by benny "MOAG" cole | January 16, 2009

  7. Chavez is in trouble. I’ve been through oil busts. They aren’t pretty. Louisiana had 25%+ unemployment during the last oil bust. Chavez compounded the coming pain with foolhardy spending and investment during the boom times.

    Btw,the IEA cut its oil demand forecast once again. Seems to be a weekly occurrence with these guys.

    Comment by Maury | January 16, 2009

  8. Chavez is in trouble. I’ve been through oil busts. They aren’t pretty. Louisiana had 25%+ unemployment during the last oil bust. Chavez compounded the coming pain with foolhardy spending and investment during the boom times.Btw,the IEA cut its oil demand forecast once again. Seems to be a weekly occurrence with these guys.

    Comment by Maury | January 16, 2009

  9. I echo others here. You would have to be nuts to take him up on the offer unless you are willing to enforce the deal with military force.

    Mary Anastasis Grady, the Lat Am expert at the WSJ seems to think Chavez won’t go away anytime soon:

    Dictatorship for Dummies

    Optimists have long theorized that Venezuela’s Hugo Chávez would meet his Waterloo with the burst of the petroleum bubble. But with oil prices down some 75% from their highs last year and the jackboot of the regime still firmly planted on the nation’s neck, that theory requires revisiting.

    It is true that popular discontent with chavismo has been rising as oil prices have been falling. The disillusionment is even likely to increase in the months ahead as the economy swoons. But having used the boom years to consolidate power and destroy all institutional checks and balances, Mr. Chávez has little incentive to return the country to political pluralism even if most Venezuelans are sick of his tyranny.

    OT, but this is funny: Biodiesel closes Minnesota schools

    Another green initiative gone wrong.

    Comment by KingofKaty | January 16, 2009

  10. I echo others here. You would have to be nuts to take him up on the offer unless you are willing to enforce the deal with military force. Mary Anastasis Grady, the Lat Am expert at the WSJ seems to think Chavez won’t go away anytime soon: Dictatorship for Dummies Optimists have long theorized that Venezuela’s Hugo Chávez would meet his Waterloo with the burst of the petroleum bubble. But with oil prices down some 75% from their highs last year and the jackboot of the regime still firmly planted on the nation’s neck, that theory requires revisiting.It is true that popular discontent with chavismo has been rising as oil prices have been falling. The disillusionment is even likely to increase in the months ahead as the economy swoons. But having used the boom years to consolidate power and destroy all institutional checks and balances, Mr. Chávez has little incentive to return the country to political pluralism even if most Venezuelans are sick of his tyranny. OT, but this is funny: Biodiesel closes Minnesota schools Another green initiative gone wrong.

    Comment by KingofKaty | January 16, 2009

  11. King, glad you stopped by. Do you know the latest in the COP/Chavez dispute? Do you think COP will ever see any remuneration?

    That biodiesel story is worth a post. I may put something up tomorrow.

    Cheers, RR

    Comment by Robert Rapier | January 16, 2009

  12. King, glad you stopped by. Do you know the latest in the COP/Chavez dispute? Do you think COP will ever see any remuneration?That biodiesel story is worth a post. I may put something up tomorrow.Cheers, RR

    Comment by Robert Rapier | January 16, 2009

  13. RR – I was at a meeting yesterday where the question was asked. They had hoped to have arbitration finished by end of 2008 but it is dragging out longer. Nobody is confident making any predictions.

    The best comment I saw was the Bloomington was taking a “biodiesel” day off. In MN, some loons are arguing that it isn’t the biodiesel’s fault, it is the conventional diesel blended with it to try to raise the pour point, and that the fix is to go to 100% biodiesel! Idiots.

    I think if my kid were standing on the corner waiting for his bus in -30 F weather I wouldn’t be too happy.

    Comment by KingofKaty | January 16, 2009

  14. RR – I was at a meeting yesterday where the question was asked. They had hoped to have arbitration finished by end of 2008 but it is dragging out longer. Nobody is confident making any predictions. The best comment I saw was the Bloomington was taking a “biodiesel” day off. In MN, some loons are arguing that it isn’t the biodiesel’s fault, it is the conventional diesel blended with it to try to raise the pour point, and that the fix is to go to 100% biodiesel! Idiots. I think if my kid were standing on the corner waiting for his bus in -30 F weather I wouldn’t be too happy.

    Comment by KingofKaty | January 16, 2009

  15. The best comment I saw was the Bloomington was taking a “biodiesel” day off. In MN, some loons are arguing that it isn’t the biodiesel’s fault, it is the conventional diesel blended with it to try to raise the pour point, and that the fix is to go to 100% biodiesel! Idiots.
    That is pretty funny, King.

    How hard can it be to solve the problem? Add ~20% gasoline and you’re done. But I guess some of the true-blue greens would rather freeze to death than allow any of that stuff!

    RR, you need to write an article explaning that biodiesel is different from diesel, and how that is of importance to people who get to experience real winter, unlike Benny and myself. You may also address common misconceptions, such as that methanol and the lye (“catalyst” that can’t be reused) does not grow on trees.

    Actually, now that I have you oilmen on the line: I have been driving my 300D on the following mixture:
    ~80% WVO = waste veg oil
    ~20% RUG = regular unleaded gas
    0.4% PGT = pure gum turpentine
    0.08% acetone
    0.16% cetane boost (octylnitrate)
    0.16% “cold flow improver” (a witches brew)
    0.16% “diesel additive” = antioxidant
    0.12% solvent (“enzymes”, yeah right!)
    0.08% antimicrobial*
    0.16% isopropanol (dehydrant)*
    * Optional
    ~$1.00/gal at current prices, not including the manpower

    I know oilmen don’t spend too much time figuring the miscibility of lipids and hydrocarbons, but I’d appreciate any comments you may have.

    As long as I don’t screw it up, the Benz loves it (so far, anyway)…

    Comment by Optimist | January 17, 2009

  16. The best comment I saw was the Bloomington was taking a “biodiesel” day off. In MN, some loons are arguing that it isn’t the biodiesel’s fault, it is the conventional diesel blended with it to try to raise the pour point, and that the fix is to go to 100% biodiesel! Idiots.That is pretty funny, King.How hard can it be to solve the problem? Add ~20% gasoline and you’re done. But I guess some of the true-blue greens would rather freeze to death than allow any of that stuff!RR, you need to write an article explaning that biodiesel is different from diesel, and how that is of importance to people who get to experience real winter, unlike Benny and myself. You may also address common misconceptions, such as that methanol and the lye (“catalyst” that can’t be reused) does not grow on trees.Actually, now that I have you oilmen on the line: I have been driving my 300D on the following mixture:~80% WVO = waste veg oil~20% RUG = regular unleaded gas0.4% PGT = pure gum turpentine0.08% acetone0.16% cetane boost (octylnitrate)0.16% “cold flow improver” (a witches brew)0.16% “diesel additive” = antioxidant0.12% solvent (“enzymes”, yeah right!)0.08% antimicrobial*0.16% isopropanol (dehydrant)** Optional~$1.00/gal at current prices, not including the manpowerI know oilmen don’t spend too much time figuring the miscibility of lipids and hydrocarbons, but I’d appreciate any comments you may have.As long as I don’t screw it up, the Benz loves it (so far, anyway)…

    Comment by Optimist | January 17, 2009

  17. RR, you need to write an article explaning that biodiesel is different from diesel,

    Funny you mention that. I woke up this morning, and thought “I need to write an essay reiterating the differences between petroleum and biodiesel.”

    I know oilmen don’t spend too much time figuring the miscibility of lipids and hydrocarbons, but I’d appreciate any comments you may have.

    That’s an interesting concoction. A couple of things I would mention. The gasoline is going to differ between winter and summer. Don’t know how that will impact you, but the amount of butane in the gasoline blend – and the vapor pressure as a result – will increase on the winter blends. So if you start to notice a difference, that could be why.

    I spent some time studying straight vegetable oil (SVO) last winter as I was writing my book chapter (and I have a section in there on SVO). Studies have shown that you can run a diesel engine on SVO as long as the temperature is right, but there is can be problems with carbon deposits after a while. Don’t know if the other components in your blend will prevent that.

    Cheers, RR

    Comment by Robert Rapier | January 17, 2009

  18. RR, you need to write an article explaning that biodiesel is different from diesel,Funny you mention that. I woke up this morning, and thought “I need to write an essay reiterating the differences between petroleum and biodiesel.”I know oilmen don’t spend too much time figuring the miscibility of lipids and hydrocarbons, but I’d appreciate any comments you may have.That’s an interesting concoction. A couple of things I would mention. The gasoline is going to differ between winter and summer. Don’t know how that will impact you, but the amount of butane in the gasoline blend – and the vapor pressure as a result – will increase on the winter blends. So if you start to notice a difference, that could be why.I spent some time studying straight vegetable oil (SVO) last winter as I was writing my book chapter (and I have a section in there on SVO). Studies have shown that you can run a diesel engine on SVO as long as the temperature is right, but there is can be problems with carbon deposits after a while. Don’t know if the other components in your blend will prevent that.Cheers, RR

    Comment by Robert Rapier | January 17, 2009

  19. Studies have shown that you can run a diesel engine on SVO as long as the temperature is right, but there is can be problems with carbon deposits after a while. Don’t know if the other components in your blend will prevent that.
    Yes, I am aware of that. IMHO, I have two strategies for avoiding, or rather minimizing that: (1) the antioxidant is suppossed to prevent oxidation-polymerization from happening, and (2) all those solvents hopefully keep the deposits to a minimum. Hopefully the somewhat lower viscosity also helps.

    Of course, the whole oxidation-polymerization thing also confuses the #%^$#^%$ out of me: according to some of the explanations I have read it seems more like dimerization that polymerization. Hard to believe that it would be such a problem if that is true…

    Comment by Optimist | January 19, 2009

  20. Studies have shown that you can run a diesel engine on SVO as long as the temperature is right, but there is can be problems with carbon deposits after a while. Don’t know if the other components in your blend will prevent that.Yes, I am aware of that. IMHO, I have two strategies for avoiding, or rather minimizing that: (1) the antioxidant is suppossed to prevent oxidation-polymerization from happening, and (2) all those solvents hopefully keep the deposits to a minimum. Hopefully the somewhat lower viscosity also helps.Of course, the whole oxidation-polymerization thing also confuses the #%^$#^%$ out of me: according to some of the explanations I have read it seems more like dimerization that polymerization. Hard to believe that it would be such a problem if that is true…

    Comment by Optimist | January 19, 2009

  21. Sam,

    I agree with you on the hype on the PEM fuel cells. Their inability to handle much beyond pure hydrogen hurts their overall system efficiency when any hydrocarbon fuel is used.

    SOFC’s on the other hand can give you high efficiency on hydrocarbons (approaching 70% system efficiency with steam reforming). But we still haven’t figured out how to effectively deal with H2S. H2S doesn’t kill it but will decrease the performance (increases cost per kilowatt).

    Both are still just way to expensive. GM sunk in a ton of money into PEM and I don’t think they made much progress on getting the cost down. SOFC’s are getting better than they use to be, but they are still very expensive. It will take either major reductions in manufacturing cost or way more expensive energy cost to make either commercially viable.

    Comment by Cereng | January 20, 2009

  22. Sam,I agree with you on the hype on the PEM fuel cells. Their inability to handle much beyond pure hydrogen hurts their overall system efficiency when any hydrocarbon fuel is used. SOFC’s on the other hand can give you high efficiency on hydrocarbons (approaching 70% system efficiency with steam reforming). But we still haven’t figured out how to effectively deal with H2S. H2S doesn’t kill it but will decrease the performance (increases cost per kilowatt). Both are still just way to expensive. GM sunk in a ton of money into PEM and I don’t think they made much progress on getting the cost down. SOFC’s are getting better than they use to be, but they are still very expensive. It will take either major reductions in manufacturing cost or way more expensive energy cost to make either commercially viable.

    Comment by Cereng | January 20, 2009


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